An increase to monthly benefits is coming, but there’s a chance that recipients could be dissatisfied.
On Aug. 14, Social Security commemorated its 90th anniversary. For the past nine decades, Social Security has been one of America’s most important and impactful social programs, helping to keep hundreds of millions of retired Americans financially afloat in their golden years. Social Security isn’t without its faults, but everyone should be able to recognize it as a good thing.
According to the Social Security Administration (SSA), the program will pay out over $1.6 trillion to around 72 million people this year (this includes retired, survivor, and disability benefits). For those beneficiaries, one of Social Security’s most anticipated dates is coming: the announcement of the annual cost-of-living adjustment (COLA).
There are plenty of recurring events with Social Security, but the COLA announcement — which occurs on Oct. 15 — is one of the most anticipated because of the direct impact it has on all beneficiaries’ monthly benefits. Let’s take a deeper dive into how the COLA works, and why estimates for next year’s figure could be a cause for both optimism and concern.
Image source: Getty Images.
How the annual COLA is determined
Social Security considers the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine the percentage at which to set the COLA each year. The CPI-W is a specific inflation measure that the Bureau of Labor Statistics (BLS) publishes monthly.
Common expenses included in the CPI-W are housing, food, medical care, transportation, and clothing. If you’ve paid attention to prices of late, then you’ve likely noticed just how much more expensive those items and services are compared to past years. That’s why the COLA is important. It’d be unreasonable to ask someone to keep surviving off the same Social Security benefits while seemingly everything but televisions falls victim to inflation.
Social Security calculates the COLA using the following process:
- Take the CPI-W figures for the third quarter of the year (July, August, and September) and calculate the average.
- Do the same for the previous year, to serve as a baseline when calculating inflation.
- Set the percentage difference as the COLA for the upcoming year. (If the CPI-W decreased or stayed the same, there is no COLA, and benefits remain unchanged.)
What is the anticipated COLA for 2026?
The Senior Citizens League (TSCL) is a nonpartisan senior advocacy group that routinely publishes COLA estimates based on CPI data, the Federal Reserve interest rate, and the national unemployment rate. In its latest estimate released this month, TSCL has the upcoming COLA at 2.7%, up from the 2.6% estimate it published last month.
US Inflation Rate data by YCharts.
The good-ish news is that this is slightly higher than the 2.5% COLA for 2025. The could-be-better news is that this COLA is fairly modest, and below the 3.4% average since COLAs became routine in 1975. Again, it’s important to remember that the official COLA won’t be announced until Oct. 15, and this estimate shouldn’t be taken as definitive.
The COLA has noticeable limits
Social Security recipients surely welcome any increase in benefits, but that doesn’t necessarily mean the COLA is fully doing what it’s intended to do — offset the effects of inflation. According to TSCL, Social Security recipients have lost around 30% of their purchasing power since 2000, so that every $1 in benefits then is only worth around $0.70 in today’s dollars. That’s far from ideal.
TSLC’s executive director, Shannon Benton, alluded to this fact, noting that the group’s research “shows that many seniors believe the COLA does not adequately capture the inflation they experience.” And when you look at certain expenses that seniors face (like healthcare, which is often one of their largest), it’s easy to see how this could be the case.
One proposed change has been to use the Consumer Price Index for the Elderly (CPI-E) instead. It applies to people age 62 and older, and puts more emphasis on healthcare and housing costs.
Nobody can say if the COLA process will ever change. In the meantime, Social Security recipients should plan conservatively, and come to terms with the fact that the COLA may not be a 1-to-1 offset of inflation.
